Construction companies have been weakened by the recession, theeconomy is still in recovery and profits are harder to come by,making it more important than ever for risk managers to get thebest builders' risk coverage available.

The challenge is finding the best price possible. This isattainable, especially when risk managers take steps to help themput in place a policy that will serve as the cornerstone of theirrisk-management program.

Taking these steps can make the difference between just adequateand ample coverage.

FIND THE RIGHT INSURANCE PARTNER

Having the right insurance carrier, agent or broker is a hugeadvantage. With their experience and access to risk constructionengineers, these insurance professionals can offer invaluableknowledge and resources.

Getting the insurance team on board early in the process canalso help control costs. It's much easier to accurately price apolicy if the underwriter has a complete picture of the project.What's more, if a problem does arise down the road, the team willbe intimately familiar with the project and its nuances.

For their part, risk managers must take the time to understandtheir project's specific needs and be aware of the factors that gointo an underwriter's calculations. The goal is to create a truepartnership, not a buyer-vendor relationship.

UNDERSTAND THE UNDERWRITER'S POV

The heart of any builder's risk policy is the assessment ofrisk. Looking at a project through the underwriter's eyes can makethe assessment more transparent. Expect the underwriter toscrutinize the owner or contractor's reputation. A solid recordwill work strongly in their favor.

The particulars of the project and how potential issues will beaddressed are also key components. Considerations include the typeof work and the kind of construction; the “means and methods” usedto accomplish the work; and measures to prevent collapse and othercalamities.

Most importantly, the underwriting process will include arigorous examination of quality control/quality assurance measures.This is a key area for proactive risk management.

While there isn't much risk managers can do about naturalperils, such as hurricanes, seismic disturbances, wind and floodevents, they should be aware of how such perils are handled in thepolicy.

DON'T UNDERESTIMATE THE COMPLETED VALUE

Determining a project's completed value—the full amount thatwould be required to rebuild in the event of a total loss—can bechallenging. It's not uncommon to underestimate the completedvalue, leading to significant losses.

When assessing completed value, it's important to include directand indirect costs such as materials, labor, workers' compensation,security services, overhead, profit, change orders andmodifications, among other wide-ranging variables.

The more detailed and accurate the breakdown, the more likely itis that the insured will get the most appropriate coverage atconsistent pricing and terms.

CONSIDER EXTRA PRECAUTIONS

Construction is complex and risk managers must expect theunexpected. If progress stops or is slower than projected, costscan mount quickly. Here, Delay in Completion coverage can beinvaluable.

Other common extensions include expediting expenses,demolition and increased costs of construction, extra expenses,claim-preparation expenses, mold remediation, service interruptionand fire brigade charges.

Risk managers for contractors can also secure additionalprotections, beyond what the owner has purchased. A Master BuildersRisk policy, which is broad-based and designed to meet varyinginsurance requirements across multiple projects, is one option.Often, these policies also include an option that enablescontractors to “buy down” high deductibles.

Contractors can also purchase wraparound coverage—also known asDIC/DOC or Difference In Conditions/Difference of Coverages—toprotect against gaps in the owner's coverage, should the ownerelect to use their property policy.

A SOLID INSURANCE FOUNDATION

Like construction itself, builder's risk insurance has a lot ofmoving parts. Putting the right builder's risk policy in place,however, can create a solid foundation and give risk managers thesecurity of knowing the project will be completed—at a gain and nota loss.

John Tutera is construction property vice president atspecialist insurer, Hiscox USA. Located in the New Yorkoffice, he can be reached at [email protected],www.hiscoxusa.com.